Terms Explained
This is a supplementary article to
"What is factoring".
Here is a brief explanation of some frequently used expressions in factoring:
Recourse factoring
You still remain liable for the debt. If the factoring company cannot recover the debt, you have to repay the cash advance.
Non-recourse factoring
The factoring company take on the debt risk. You do not have to repay the advance if the debt is not paid. For obvious reasons, this type of factoring is more expensive than recourse factoring.
Invoice discounting
You continue to have responsibility for collecting your debt, but the factoring company gives you a cash advance according to the amount of debt outstanding. If the amount outstanding goes up, they give you more cash, in proportion to the increase. If the amount goes down, you refund the factoring company, in proportion to the increase.
Accounts receivable factoring
The factoring company takes on responsibility for managing your accounts receivable and collecting your debt. They take a percentage of the invoice value, but also the burden of collecting the debt.
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